Using SROI has many benefits but there are limitations too. Photograph: Elizabeth Young/AFP

The government's promised opening-up of public service delivery to outside organisations has led to renewed focus on measuring outcomes. With more players entering into the public sector market and tighter budgets the government's mantra of "doing more with less" inevitably means greater attention to the value of different providers.

This is no more evident than with the government's flagship Social Impact Bonds that propose to give private investors a financial return if the project they have supported produces an agreed social return. Clearly a payment by results approach to public service delivery requires a reliable means of measuring social outcomes.

SROI has been suggested as a possible standardised evaluation tool. It offers an approach that identifies quantified outcomes attributable to a project and then finds financial proxies that match these outcomes. By calculating in financial terms the total value of benefits produced against the cost of investment the final SROI ratio communicates at a glance the net value of a project.

SROI does indeed offer real benefits. Its detailed focus on outcomes – the various ways in which people's lives are impacted and for how long – helps projects highlight the full breadth and extent of benefits. By giving an estimate of the financial value of these benefits it is also a method that gives voice to intangible aspects of a project that might not otherwise appear in evaluation reports.

A recent SROI I conducted for the sexual health charity FPA on their Speakeasy parenting programme, for example, uncovered that many participants had experienced improved self-confidence as a result of their involvement. This was a by-product of the key change intended by the project – improved family conversations about sex – but a change that parents highlighted as important to them. SROI attempts to quantify and give value to all outcomes relevant to the service-user not what is easily countable or assumed to be important.

But while the attempt to give financial value to outcomes has many benefits, we should also recognise its limitations. Finding a financial proxy to match a particular outcome can be subject to considerable judgement. The savings to the state caused by a reduction in teenage pregnancies, for example, can be readily calculated using standardised unit costs.

Improvement in the well-being of individuals, however, is much more difficult to value with precision. SROI attempts to measure this by asking the service user how they themselves value this change: how important it is to them and how this value compares to goods and services that they spend money on.

By listening to the comments of service users the evaluator arrives at an approximate market value for the change experienced. For the Speakeasy project, for example, parents indicated that their self-confidence had improved as a result of the course. When asked to compare this outcome with something that produced a similar feeling but was paid for, parents suggested attending a course to improve self-confidence as an equivalent.

Making a valuation based on this feedback is not of course unproblematic. Some would argue, for example, that qualities such as self-confidence have an intrinsic value that is simply not reducible to a monetary value. Others would say that asking people to value non-market goods is fraught with problems and liable to produce misleading results

We should not overstate the ability of SROI to provide an absolutely watertight means of calculating social value. The valuations produced are often representations of phenomena that don't readily lend themselves to monetary value. But the inherent difficulties of measuring social value shouldn't blind us to the strengths of this approach.

The rigour and transparency of the SROI method promises to make assessments of impact more credible and provide a standardised approach for funders to evaluate the effectiveness of funding. Most importantly, by using the language of economic appraisal SROI offers an opportunity to articulate the benefits of social projects in a language understood by decision makers. Charities will surely gain if the use of SROI brings more clarity and understanding to the inherently messy endeavour of measuring social value.

A view from the Princess Royal Trust for Carers

There are around six million people in the UK that care for a friend or family member with an illness, long-term condition, disability or mental health or substance misuse problem. Carers frequently us how their lives have been transformed by getting the right information and support. Knowing this is one thing and demonstrating the economic value, another however.

The findings were striking. The five carers' centres – Harrogate, Hertfordshire, Lewisham, Suffolk and Westminster – generated annual gains to society of at least £73m, from less than £5m of funding across all five centres.

This gain in value arises from carers maintaining better physical and mental health by reducing stress and depression. In addition to this the person who is cared for is able to continue living at home while some carers may be able to continue working. The services targeting young carers play a crucial role in assisting young carers to continue education, find employment or receive training.

The cases we looked at were a young carer, a carer who in paid employment, a parent carer of a child under the age of 18, and one for an adult son or daughter and a carer of retirement age caring for their spouse or partner.

All were evaluated using a life-course analysis, which looked at the impact of the carers' centres work over a number of years and a weighted average social impact per carer was derived.

We noted that the gain was also enhanced because centres were offering a number of services in one place – enabling carers to move easily between different types of support.

Jane Burt is director of operations at the Princess Royal Trust for Carers